This paper seeks to investigate the strategic implications of a firm’s pricing and advertising policies associated with cheating and delighting customers on quality. To this end, we formulate a general model with three alternative options: non-deviant, i.e., fair; and deviant, i.e., cheating and delighting, quality policies. In the case of deviant policies, cheating is a means to inflate goodwill through false advertising in order to draw a cheating rent as long as the cheating is not disclosed, while delighting is a means to enhance goodwill through extra quality in order to benefit from a delighting rent once the delighting is awarded. The probability of disclosure of information on cheating (delighting) depends on the cumulative number of customers cheated (delighted). The information disclosure results in asymmetric market sanction between cheating and delighting. In addition, if revealed, cheating results in the payment of a one-time penalty and the stopping of the activity. We notably show that a non-deviant quality policy is not the preferred option for either the firm or the customers and that history-dependency is an important factor for a successful deviant quality policy.

We consider a manufacturer that produces in response to a stochastic demand and emits pollution during the production process. Industrial pollutants released into the air are characterized by spatial variability and special heterogeneity, and the precision of instruments for measuring stochastic pollution stocks varies widely across pollutants. Consequently, commitment (open-loop) strategies to control production and associated emissions are considered more practical than contingent (feedback) approaches when manufacturers are concerned about environmental consequences. In this paper, we derive an optimal control policy over a time horizon and show that such a policy induces asymptotic convergence of expected inventory and pollution stock trajectories to a unique steady state in terms of mean pollutant assimilation and assimilation volatility. Moreover, we find that the variance of the pollution stock also converges asymptotically to a unique steady state, which is critical for prevention of irreversible environment consequences. Notably, we show that the variance of the pollution stock increases with the volatility of pollutant assimilation while the level of the long-run expected pollution stock is not affected. On the other hand, environmental uncertainty does affect inventories, leading in the long run to lower expected steady-state inventory stocks.

Global trade has shifted from short-distance supply chains within countries to long-distance supply chains between countries. As a result, delivery lead time has become a key operational factor, and uncertainty causes stock-outs, resulting in massive losses. An important solution for shortages is product substitutes, but they can affect the quality of the end products. Moreover, even when demand is expected and planned for, unexpected last-minute demand makes operational conditions challenging. This paper considers a single-period problem of replenishing a high-quality product under both lead time and demand-related uncertainty. Stock-outs during and at the end of the replenishment period can be handled only by providing a low-quality substitute product that requires repeated replacements, therefore affecting pending demand. We provide detailed modeling of possible stock-out scenarios and show that, in presence of these two types of uncertainty, the optimal order quantity of a high-quality product can be determined using an upper and lower threshold and a base stock level equal to anticipated (planned) demand over the replenishment period. In particular, we derive a closed-form solution for the optimal order quantity under general probability distributions of lead time and demand and explicit solutions for uniform distributions. We also show the conditions under which optimal order quantities can be insensitive to the cost of the high-quality product.

The waning efficiency of natural pollution sinks and the predicted consequence of their irreversible transformation into pollution sources within the current century call into question the environmental sustainability of economic activity and, more specifically, its basic engine: horizontal competition. Among factors likely to cast doubt on the environmental sustainability of competition, competing firms’ approaches to pollution control deserve particular attention because myopic approaches that ignore pollution dynamics accelerate such transformations. Another potentially harmful factor is the cost of adjusting production, which can hinder firms’ ability to reduce their polluting emissions in a timely way. In the context of a Cournot market structure, we consider competing firms that incur a cost when adjusting production and are subject to pollution emission taxes. We analyze how production adjustment costs and firms’ choice of myopic or farsighted pollution control policies affect their competitiveness and the long-run sustainability of the environmental system. We show that competition is not compatible with environmental sustainability under a myopic pollution control policy when the maximum threshold of pollution absorption has already been exceeded. Myopic policies cannot neutralize history dependency, and extremely large production adjustment costs exacerbate the problem. In contrast, farsighted pollution control policies can eliminate history-dependency as long as the tax policy is not too restrictive, though they lead to a more polluted environment than myopic policies operating below the maximum absorption efficiency threshold.

Organic waste resulting from fishing—consisting primarily of inedible fish parts and bycatch (non-target species) discarded during on-shore processing—is a source of substantial ecological concern. Researchers and practitioners are increasingly exploring how fishing supply chains can convert such waste into profitable products, towards benefiting the environment and the economy. The current study puts forward an optimal control model that addresses interactions between fishing practices, fish populations, and waste streams from fishing operations, with the aim of understanding how to achieve profitable and environmentally sustainable fishing practices. Although numerous models have been proposed for optimizing fish population management, ours is among the first to incorporate waste-processing dynamics, providing insight into how dynamic interactions between main-stream and side-stream supply chain operations can affect fishing policies and the overall ecosystem. We derive a necessary condition for sustainability of a “green” supply chain (i.e., one that incorporates side-stream processing) and determine the maximum fishing effort to ensure that a steady-state fish stock exists. We prove that when the cost of fish harvesting is negligible, a green supply chain (vs. a supply chain without side-stream processing) significantly reduces the rate of waste disposal but does not improve the stock of fish biomass. In a numerical analysis, we show that this result holds even when harvesting costs are high. The numerical analysis also shows that a sufficient increase in the marginal cost of fishing eliminates potential multiplicity of the steady states, thereby improving fish stock stability and ecosystem health.

We consider a manufacturing firm whose production is characterized by polluting emissions, an incorporated pollution abatement process, and continuous-time inventory control. Recognizing the stochastic nature of both pollution and inventory dynamics, we study the impact of consumer demand and pollution uncertainty on production-inventory policies under environmental costs/taxes imposed on the manufacturer. We find that the manufacturer, facing environmental uncertainty, reduces both inventory and pollution levels in the long run. The same effect is observed in terms of inventories under proportional and progressively growing environmental taxes but not necessarily in terms of pollution. In particular, emission taxes most impact expected steady-state inventories while ambient pollution taxes combat long-run pollution levels.

The COVID-19 virus continues to circulate in many countries, despite successful attempts to curb previous waves, and hence the issue of effective control both of the epidemic and its economic consequences remains a matter of lively debate. Although the estimated development time for an effective vaccine proved to be relatively accurate, many governments were still unable to devise a clear and coherent control policy during the pre-vaccination period. Policy responses often vacillated between two seemingly conflicting strategies—protecting the economy versus containing the spread of the epidemic by all available means, including mobility restrictions and social and economic lockdown. In the setup of a multidimensional and non-linear optimal control model, we describe the performance of a capital accumulation-based economy in which the revenue generated from production relies on both capital and labor. Using analytical means, we characterize intertemporal policies that ensure an optimal tradeoff between: (i) the level of lockdown, the purpose of which is to contain the epidemic and prevent the national health system from becoming overwhelmed; (ii) the level of investment in treatments; (iii) the level of consumption; and (iv) consequential impacts on labor availability and capital accumulation. We show that the fear of infection alone can be highly capital-destructive. Finally, given an incompressible consumption level, we identify thresholds for the initial endowment in capital below which the stock of capital decreases over time and can eventually become fully depleted.

Several types of network and non-network licenses control users’ access to software. The literature on efficient selection of software licenses has mostly addressed queuing models intended to estimate the probability of denial of access for a user. Under that approach, however, the lower one sets the rejection probability, the greater the likelihood that licenses will be underused. We follow the literature in describing demand for software access with an Erlang queuing model and present a general integer program for optimizing mixed-license software portfolios under constraints on two types of risk: access rejection and license underutilization. The program, in which the number of licenses of each type is a decision variable, minimizes the total licensing cost while satisfying constraints on access denial and license underutilization. We evaluate and illustrate the ability of an efficient enumerative algorithm to solve the common problem of selecting an appropriate mix of floating and network named user licenses. Our case-study analysis indicates the potential for reducing the cost of licensing while also limiting problems associated with lack of access and underutilization.

Abstract Recent data from World Bank provides evidence that there is a surprisingly large cluster of countries which have not been accumulating human capital since long time. This paper shows that this phenomenon is not necessarily at odds with the Lucas’ model (1988) of endogenous growth, provided that available time is relatively more productive in the goods-producing sector than in the schooling sector, even when all available effort is already committed to work (boundary solution). We also discuss sufficient conditions for the economy to enter a regular regime, starting to also accumulate human capital (interior solution). The elasticity of intertemporal substitution is a particularly relevant element able to shortens the no-human capital accumulation period: other things being equal, the more the economy values future, the quicker the economy is able to jump onto a transient orbit converging to the BGP.

We investigate how the relationship between capital accumulation and pollution is affected by the source of pollution: production or consumption. We are interested in polluting waste that cannot be naturally absorbed, but for which recycling efforts aim to avoid massive pollution accumulation with harmful consequences in the long run. Based on both environmental and social welfare perspectives, we determine how the interaction between growth and polluting waste accumulation is affected by the source of pollution, i.e., either consumption or production, and by the fact that recycling may or may not act as an income generator, i.e., either capital-improving or capital-neutral recycling efforts. Several new results are extracted regarding optimal recycling policy and the shape of the relationship between production and pollution. Beside the latter concern, we show both analytically and numerically that the optimal control of waste through recycling allows to reaching larger (resp., lower) consumption and capital stock levels under consumption-based waste compared to production-based waste while the latter permits to reach lower stocks of waste through lower recycling efforts.

In the media, panic buying featured as one of the top headlines at the outset of the COVID-19 pandemic. This type of consumer behavior was clearly triggered by concern that supermarkets might run out of food and other basic goods. Could regulation or another form of intervention mitigate panic buying? To study this question, we consider the dynamics of retailing operations in response to such behavior. Assuming that consumer stockpiling is triggered by a sudden drop in the level of retail stock, we show that a profit maximizing retailer will not necessarily employ all available resources to ease the situation. In particular, the optimal strategy for such a retailer is to employ a “wait and see” (intentional scarcity) policy at the initial stage of panic buying. This stage is critical, as it could lead to stock inventories reaching a minimal level, which in turn could lead to major instabilities in the market. We show that neither income-tax relief for retailers, nor the provision of subsidies to support overtime working, are useful tools. On the other hand, a lower cap-price can increase retail prices at the critical initial stage and decrease them thereafter. This strategy is found to increase the supply rate, in contrast to the usual impact of imposing a price ceiling.

Infrastructure investments are critical to support economic growth and sustain development. We consider a supply chain comprised of several firms operating under a common infrastructure and cooperating in infrastructure fund management and investment. We assume that the firms’ capital represents the supply chain infrastructure and that the firms’ goals are to choose employment and co-investment levels that maximize their long-run discounted profits. The problem is formulated as a differential game between the supply chain parties and the focus is on commitment Nash equilibria. Specifically, we derive the conditions under which a long-run path of balanced growth of infrastructure capital exists and determine the rate of growth. Furthermore, based on those results, we propose an efficient numerical algorithm for locating transient equilibrium co-investment trajectories that tend toward balanced growth of infrastructure capital and employment.

Despite legislation and price controls by the government and state agencies that typically assume responsibility for providing water services, water bills continue to rise. However, this has not prevented growth in overall water consumption, nor an increase in water scarcity, both of which are fueled by worldwide population growth, urbanization, and demand for a higher quality of life. Market-based competition is thought to be a promising approach to controlling water charges and managing water scarcity. We compare a spot-market-based competitive supply model for water, which determines the equilibrium price, with a supply chain approach, in which a non-profit public entity encourages competition between private water providers within the framework of a regulated, time-invariant price. We derive dynamic equilibrium replenishment and inventory policies and show that, contrary to expectations, spot-market competition does not necessarily result in greater levels of supply, nor in a lower price, than does a regulated supply chain. Furthermore, the public-private partnership can have an additional advantage in the form of both higher consumption and higher consumer welfare. However, increasing the distribution cost, and hence, the regulated price is likely to diminish the differences between the two market types.

During the first wave of the COVID-19 pandemic, in France, people cleared the shelves of butter; in Italy, it was pasta; in Great Britain, it was chicken. While there may be cultural disagreement on what is essential, clearly, in times of crisis, consumers stockpile the 'essentials'. We address the problem of "panic buying", which is characterized by increasing demand in the face of diminishing inventory. In such cases, prices may hike and firms (retailers) selling the high-demand product are quantity takers, in terms of supply, and price setters. We consider a manufacturer who sells a scarce product to a single retailer. The retailer seeks to maximize her profit, while in contrast, the manufacturer pursues a social objective of regulating and lowering the amount that the end customer (consumer) pays (including the cost of traveling to obtain the scarce product). By analyzing the competition between the two parties, retailer and manufacturer, we find that even when the regulator (manufacturer) makes a significant social commitment, neither subsidizing the retailer nor subsidizing the consumers necessarily curbs price hikes. Furthermore, there is a threshold ratio (i.e., proportion of the end price subsidized by the regulator) that determines the minimal budget that the regulator would need to allocate in order for subsidization to make a difference to consumers.

Motivated by rising product insecurity during the initial waves of the COVID-19 pandemic, and the resultant need for consumers to travel further to buy scarce products, we address the possibility of shortages as a result of panic buying. In particular, we study the effect of competition on inventory and pricing by considering the case in which a manufacturer apportions a scarce product to two competing retailers. We find that competition does not always effectively respond to panic buying and can cause frequent price oscillations when the market is shared equally between the two retail firms. On the other hand, in contrast to the case of monopolistic retailing, competition enables the manufacturer to regulate the cost that consumers incur even if the wholesale price is fixed. Specifically, when the market location is biased towards one of the two firms, the manufacturer can apportion supplies to the firms in such a way as to increase the average cost (which includes the retail price and the consumers’ traveling costs), thereby mitigating panic buying and reducing the risk of shortage. Alternatively, when the panic is not severe, the manufacturer can apportion in a way that decreases the average cost, thereby meeting a social welfare-oriented goal in the framework of distributing a scarce product.

In addition to the fact that goods and services typically become scarce because resources are scarce, scarcity involves a psychological aspect. When a product is limited in availability, or perceived as being limited, it becomes more attractive. As a result, as long as the product is viewed as scarce, a surplus in supplies implies an increase in consumption. Motivated by fresh-water scarcity, we address the prob-lem of dynamic interaction between two firms committing to provide water supply within a limited time horizon. We find that competition does not necessarily reduce product scarcity compared to the monopo-listic industry. In particular, commitment-based market equilibrium is characterized by a critical duration of the supply contract. Duopolistic competition within this duration is reminiscent of the conventional quantity competition-the supply grows and the price drops compared to the monopolistic output. On the other hand, a longer contract leads to a different operational outcome-the monopoly becomes gradually more beneficial in terms of supplies and, as the time horizon grows, even overwhelmingly advantageous, thereby resulting in lower scarcity of the products. (C) 2020 Elsevier B.V. All rights reserved.

False quality claims have recently rocked the automobile industry. To promote customer demand while seemingly complying with regulations, manufacturers may cheat even at the risk of incurring severe penalties. As a result, the production horizon becomes uncertain. Assuming it is socially critical to enforce quality standards (e.g., specific emission levels or safety levels for food, drugs, or transportation), we study dynamic production policies under the threat of penalties and assess when a false quality claim can be optimal for the firm. We find that regardless of the specific form of a convex penalty function, the production rate will gradually decrease to slow down the increase in the probability of getting caught. We show that the government or regulatory department can determine a minimal finite penalty to prevent the manufacturer from cheating. In the context of an underlying supply chain, we show that vertical competition between the manufacturer and its suppliers can play a socially positive role by reducing the batch produced under a false quality claim.

We address the problem of optimising the intensity of online advertising. In contrast to the classical literature, we tackle the advertising interaction between the firm and the potential customer, for the sale of a onetime event, in a very limited time horizon. The problem is intrinsically dynamic due to two conflicting situations: the first arises when the customer is subjected to intense advertising pressure, which may lead to customer saturation and even irritation, while the second is the tendency for customers to forget if they are not reminded systematically through advertising. In order to determine an optimal event-advertising policy and develop an efficient enumerative shooting algorithm to solve the problem, we suggest a hazard rate-based approach to modelling the conflicting factors. Our analysis shows that the initial level of customer interest in the event has a non-trivial effect on the dynamics of the optimal advertising policy. In particular, this advertising policy consists of a monotonic increase over time prior to the event in the case of high initial interest and a concave, peak-wise form in the case of low initial interest.

Abstract Retailers are sources of environmental pollution, 80–90% of which is ultimately due to the processes that retailers set in motion by their orders for the products they carry and sell. The goal of this paper is to investigate environmental consequences of an intertemporal competition between retailers facing demand and price-related uncertainties. In such an environment, mass displays of inventories by a firm stimulate sales while inventory shortages discourage consumers and stimulate the sales of the firm’s competitors. We consider two types of retailers – price setters and price takers – both engaged in an associated inventory competition by selling products that are partially substitutable. While price-taking retailers let the market decide the prices, price-setting retailers compete also on prices. We find that competition by both types of firms does not necessarily increase the expected retail output and, consequently, the ensuing pollution. In particular, though the stocks of the price-taking retailers grow as the competition between them intensifies, their long-term expected output declines. Moreover, the impact of uncertainty implies greater precaution since both output and pollution further decline as the uncertainty grows.